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C O N F I D E N T I A L SECTION 01 OF 04 TEL AVIV 000379 
 
NOFORN 
SIPDIS 
 
FOR DEPUTY SECRETARY STEINBERG FROM AMBASSADOR CUNNINGHAM 
 
E.O. 12958: DECL: 02/16/2020 
TAGS: PREL PGOV ENRG IS
SUBJECT: SCENE SETTER FOR DEPUTY SECRETARY STEINBERG'S 
VISIT TO ISRAEL 
 
Classified By: AMBASSADOR JAMES CUNNINGHAM, REASONS 1.4(b)(d) 
 
¶1.  (C)  Summary: I am pleased to welcome you once again to 
Israel.  Despite some areas of disagreement,  we have a 
strong 
and dynamic bilateral relationship.  The Strategic Dialogue 
has 
been an important mechanism since 2005.  This will be a 
significant opportunity to engage the Israeli government at 
the 
most senior levels at a time of political uncertainty, with 
an 
international environment that feels markedly more hostile to 
Israelis than it did a year ago.  While the domestic 
discussion 
of the GOI,s relationship with the U.S. Administration has 
become 
more reasoned over the past few months, Israelis in and out 
of 
government seek constant reassurance about the commitment of 
the 
Obama administration.  With engagement with the Palestinians 
stalled, regional relationships have suffered. Economic 
growth 
returned relatively early in Israel, and the primary 
lingering 
effect of the global financial crisis, unemployment, 
continues 
to subside. Growing the economy and increasing the 
participation 
of all segments of Israeli society are priorities for the 
current 
government, and they are striving to remain fiscally 
conservative 
while pursuing these goals.  End Summary. 
 
POLITICAL LANDSCAPE 
 
 
¶2. (C)  Overall, the Netanyahu government is solid.  He has 
carved 
out a position firmly within the Israeli consensus, and he is 
not 
under any serious political pressure to change course.  The 
opposition, led by former Foreign Minister Tzipi Livni, has 
had a 
difficult time finding traction for its argument that it 
generally 
agrees with Netanyahu,s policy of a demilitarized 
Palestinian 
state next to Israel but claims his commitment to peace is 
weak 
and argues that lack of international confidence in his 
approach 
is leading Israel to disaster.  Israelis remain concerned 
about 
what they see as increasing attacks on their legitimacy from 
the 
Goldstone Report, potential criminal prosecutions in Europe 
under 
universal jurisdiction, and increased calls for boycotts. 
 
¶3.  (C) Netanyahu is serious in his calls for a resumption of 
negotiations, and he is aware that the lack of progress in 
the 
peace process is fueling much of the international hostility 
towards Israel, as well as putting some strain on the 
relationship 
with the United States.  The limited freeze on settlement 
construction, while short of both the Palestinian and USG 
expectations, was a difficult decision that carries a real 
political and financial cost.  Israelis believe that this 
limited 
freeze, combined with the actions the GoI has taken to 
improve 
conditions in the West Bank, should be sufficient 
encouragement 
to the Palestinians to restart negotiations.  The GoI is not 
willing to offer any more gestures, and has doubts that any 
future 
gestures will yield a different response from the 
Palestinians. 
 
¶4. (C) The Goldstone report is back in the headlines with the 
recent UN Secretary General report on the subject and the 
Israeli 
submission of an update on its own investigations regarding 
incidents during the war.  Israeli leaders have developed a 
 
TEL AVIV 00000379  002 OF 004 
 
 
virtually obsessive reaction to the report, which they see as 
an 
assault on both the State of Israel and its democratic 
institutions, 
and an attempt to deny their right to self-defense against 
terrorism.  DRL Assistant Secretary Michael Posner recently 
visited 
Israel and engaged with them on this issue in-depth.  The 
Palestinian Authority's (PA) handling of the Goldstone 
report, as 
well as the PA,s continued effort to convince the 
International 
Criminal Court to investigate Israeli actions in Gaza, have 
further 
complicated Israel,s relations with the PA and pose a threat 
to both 
the potential for negotiations and the efforts to improve the 
situation in the West Bank.  In the meantime, Israelis 
express 
satisfaction with both Fayyad,s efforts to reform the PA and 
with 
the much improved performance of PA Security Forces, although 
they 
believe the PA,s assessments of its abilities on both fronts 
are 
overly optimistic.  In Gaza, Israel policy is caught on the 
horns of 
a dilemma over Gilad Shalit and Hamas,s continued control 
within the 
Strip. 
 
¶5.  (C) On Iran, the GoI has accepted our policy of 
engagement, but 
Israel, particularly PM Netanyahu  and DM Barak, continue to 
regard a 
nuclear Iran as an existential threat and a catastrophe for 
regional 
stability.  The GoI has pushed for immediately enacting 
tougher 
sanctions and insists on keeping a military option available 
as a last 
resort.  Iran was the main point of discussion during last 
month,s 
visit of NSA Jones.  Israeli experts within and outside 
government 
argue that how the Iranian nuclear issue is resolved over the 
next two 
years will determine the perception of U.S. power for years 
to come. 
 
¶6.  (C) Deteriorating relations with Turkey are also a 
concern, and 
many Israelis believe that Turkey will continue to move 
inexorably 
away from Israel and the West and closer to Syria and Iran 
due to 
internal politics and a new regional strategy.  On Lebanon, 
most GoI 
officials believe another war with Hizbullah is just a matter 
of time, 
but they are in no rush to provoke anything and believe 
Hizbullah, at 
least for now, also has no interest in a fight.  However, 
they repeat 
both publicly and privately their belief that all of Lebanon 
will be 
held accountable for Hizbullah actions now that Hizbullah is 
a partner 
in the government. 
 
Lieberman and the MFA,s Image 
----------------------------- 
 
¶7.  (C) Israeli analysts of the GOI,s decision-making 
process have long 
argued that the MFA carries too little institutional weight 
when 
compared to the IDF and intelligence agencies.  In the 
Netanyahu 
government, that imbalance has been further accentuated by 
the 
appointment of Avigdor Lieberman as Foreign Minister, as well 
as by the 
rising importance of the NSC and particularly of NSC head Uzi 
Arad in 
internal foreign policy discussions.  Netanyahu offered 
Lieberman the 
Foreign Ministry fully aware of Lieberman,s record of 
 
TEL AVIV 00000379  003 OF 004 
 
 
provocative public 
remarks and his penchant for a pugilistic approach to 
diplomacy, but 
Netanyahu apparently calculated that the damage would be 
manageable and 
off-set by the political benefits in terms of coalition 
stability.  In 
practice, Netanyahu has largely sealed Lieberman off from the 
most 
important foreign policy issues, including relations with the 
U.S. and 
negotiations with the Palestinians, with Netanyahu consulting 
most 
closely on these issues with Barak and President Peres. 
Nonetheless, 
Lieberman has inflicted damage on the conduct of Israel,s 
foreign 
relations and has forced Netanyahu on several occasions to 
intervene, 
most recently when Netanyahu was forced to reiterate 
Israel,s peaceful 
intentions toward Syria following threats by Lieberman 
against the Asad 
family.  Deputy Foreign Minister Danny Ayalon,s actions, in 
particular 
his highly publicized effort to humiliate the Turkish 
Ambassador, have 
further contributed to the marginalization of the Foreign 
Ministry and 
may also cause lasting damage to Ayalon,s political future. 
 
¶8.  (C)   The Israeli National Police have been investigating 
Lieberman,s 
alleged involvement in money laundering, obstruction of 
justice, and other 
charges for a number of years, but the investigation came to 
a head shortly 
after the coalition was formed.  Last August, the INP 
recommended that the 
Attorney General indict Lieberman, but outgoing Attorney 
General Mazuz did 
not finish his review of the file before leaving office at 
the end of 
January.  The new Attorney General, Yehuda Weinstein, is 
likely to need at 
least six months to study the issue.  The Israeli political 
class assumes 
that Weinstein will issue an indictment and that Lieberman 
will step down, 
but the timing is uncertain.  Meanwhile, Lieberman is keeping 
his commitment 
to Netanyahu to support the PM,s policies in the inner 
cabinet, even while 
his public comments continue to cause political heartburn. 
 
 
ENERGY SECURITY 
 
 
¶9. (C)  The Israelis have made a strong push to include 
energy security in 
this year,s strategic dialogue.  Israel,s Economic Council 
Chair Eugene 
Kandel proposed that the SD energy security discussion focus 
on: 
a)  Strategic reasons for and means of weaning the 
industrialized world 
from excessive dependency on petroleum (policy measures and 
technological 
means); and b),strategies to manage the economic and 
geopolitical effects 
of a shift to less dependence on petroleum.  Israel would 
like to address 
how it can secure its energy supply for the future. 
Currently about 
70 percent of electricity production comes from (imported) 
coal, and about 
20 percent from natural gas, increasingly from the pipeline 
from Egypt, 
which came online in February 2008.  Alternative energy, 
especially 
renewable sources, are a priority for the Government of 
Israel, and Israel 
strives to maintain OECD-consistent environmental standards. 
Commercial 
quantities of natural gas discovered offshore at the end of 
2008 (with 
more following, including limited onshore oil reserves) have 
 
TEL AVIV 00000379  004 OF 004 
 
 
the potential 
to relieve Israel,s energy import dependence.  Israel needs 
to make 
important decisions about how to manage its newly-discovered 
petroleum 
resources, including related infrastructure priorities, and 
will need to 
determine how large a role (domestic) natural gas should play 
in Israel,s 
energy mix.  Israel anticipates that its bid for OECD 
membership will be 
approved soon.  Once Israel joins the OECD, it could apply to 
join the IEA. 
 
¶10.  (SBU) I believe your visit will advance discussions for 
partnership in 
many arenas, and I extend a warm welcome  to you and your 
staff. 
 
Cunningham